FIRST AMENDMENT AND MODIFICATION
TO LOAN AND SECURITY AGREEMENT AND OTHER LOAN DOCUMENTS
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THIS FIRST AMENDMENT AND MODIFICATION TO LOAN AND SECURITY AGREEMENT
(the "Amendment") is made effective as of May 18, 2007 by and among LASALLE
BANK NATIONAL ASSOCIATION (the "Lender") and ZANETT, INC., a Delaware
corporation ("Zanett"), ZANETT COMMERCIAL SOLUTIONS, INC., a Delaware
corporation ("ZCS") and PARAGON DYNAMICS, INC., a Delaware corporation
(Zanett, ZCS and Paragon are each individually, a "Borrower" and
collectively, the "Borrowers").
BACKGROUND
A. Borrowers and Lender have previously entered into a certain Loan
and Security Agreement dated December 21, 2006 (the "Loan Agreement"),
pursuant to which, inter alia, Lender agreed to extend to Borrowers certain
credit facilities subject to the terms and conditions set forth therein.
X. Xxxxx Guazzoni and Lender have previously entered into a certain
Subordination Agreement dated December 21, 2006 (the "Subordination
Agreement"), pursuant to which, inter alia, Xxxxx Xxxxxxxx subordinated
the Junior Debt to the Senior Debt (as both such terms are defined in
the Subordination Agreement).
C. Borrowers and Lender are entering into this Amendment to amend
certain terms and conditions of the Loan Agreement and Subordination
Agreement.
D. Capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth for such terms in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Amendments to Loan Agreement.
1.1 Maximum Revolving Loan Limit.
(a) The definition of "Maximum Revolving Loan
Limit" set forth in the Loan Agreement shall be amended to read, in its
entirety, as follows:
""Maximum Revolving Loan Limit" shall mean $8,000,000 as of the date of
this Agreement."
(b) The definition of "Notice of Increase"
set forth in the Loan Agreement and all references to such definition used
therein shall be deleted in their entirety.
(c) Section 2(e) of the Loan Agreement is
hereby deleted in its entirety.
(d) Exhibit D of the Loan Agreement is
hereby deleted in its entirety.
1.2 Fixed Charge Coverage Ratio. Section 14(a) of
the Loan Agreement shall be and is hereby amended to read, in its entirety,
as follows:
"(a) Fixed Charge Coverage Ratio. Borrowers shall maintain a Fixed Charge
Coverage Ratio of not less than the ratio set forth for the corresponding
period set forth below:
Period Ratio
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For the 3 month period ending 1.0 to 1.0
on December 31, 2006
For the 6 month period ending 0.77 to 1.0
on March 31, 2007
For the 9 month period ending 0.76 to 1.0
on June 30, 2007
For the 12 month period ending 1.10 to 1.0
on September 30, 2007 and each
12 month period ending on the
last day of each fiscal quarter
thereafter
1.3 Senior Debt Ratio. Section 14(b) of the Loan
Agreement shall be and is hereby amended to read, in its entirety, as
follows:
"(b) Senior Debt Ratio. Borrowers shall maintain a Senior Debt Ratio of
not greater than the ratio set forth below for the corresponding period set
forth below:
Period Ratio
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For the 3 month period ending 3.0 to 1.0
on December 31, 2006
For the 6 month period ending 4.30 to 1.0
on March 31, 2007
For the 9 month period ending 4.25 to 1.0
on June 30, 2007
For the 12 month period ending 2.75 to 1.0
on September 30, 2007
For the 12 month period ending 2.5 to 1.0
on December 31, 2007 and each
12 month period ending on the
last day of each fiscal quarter
thereafter
1.4 EBITDA. Section 14(c) of the Loan Agreement shall
be and is hereby amended to read, in its entirety, as follows:
"(c) EBITDA. Borrowers shall maintain EBITDA for (i) the calendar
month of May, 2007 of not less than $150,000; (ii) for the calendar month of
June, 2007 of not less than $160,000; (iii) the calendar month of July, 2007
of not less than $175,000; and (iv) the calendar month of August, 2007 and
for each calendar month thereafter of not less than $180,000."
2. Waiver of EBITDA Covenant. Borrowers have requested and
Lender has agreed to waive as an Event of Default the failure of Borrowers
to comply with the "EBITDA" covenant set forth in Section 14(c) of the Loan
Agreement for the following calendar months: (i) February, 2007, (ii) March,
2007 and (iii) April, 2007. Such waiver shall be limited to Borrowers'
compliance with Section 14(c) of the Loan Agreement solely for February,
March and April, 2007 calendar months and for no other period and such waiver
shall not be construed to constitute a waiver of Borrowers' compliance with
any other terms of the Loan Agreement or an agreement to enter into any
future waivers with Borrowers.
3. Interest Rate. Commencing as of the date of this Amendment
and at all times thereafter until the Original Covenant Compliance Date
(as defined below) has occurred, (a) LIBOR Rate Loans shall not be made
available to Borrowers and Borrowers shall have no right to request or receive
LIBOR Rate Loans and (b) all Revolving Loans shall be Prime Rate Loans and
such Prime Rate Loans shall bear interest at the Prime Rate in effect from
time to time plus 1.0%, payable on the first Business Day of each month in
arrears. As used herein, "Original Covenant Compliance Date" shall mean the
date (which must be the last day of the calendar month) as of which (a)
Borrowers are in full compliance with all of the original financial covenants
set forth in Sections 14(a), (b) and (c) of the Loan Agreement prior to and
without taking into effect the amendments to such covenants set forth in
this Amendment, and (b) no other Event of Default shall have occurred and
be continuing. In the event Original Covenant Compliance Date occurs as
determined by Lender in its sole discretion based upon compliance
certificates, financial statements and any other information as Lender
may require, Lender shall notify Borrowers in writing and upon receipt
by Borrowers of such written notice, Borrowers may request LIBOR Rate
Loans in accordance with the Loan Agreement and Prime Rate Loans shall
bear at the Prime Rate in effect from time to time plus zero percent.
4. Additional Junior Debt.
Borrowers and Xxxxx Xxxxxxxx, jointly and severally, represent
and warrant to and covenant with Lender as follows:
4.1 Xxxxx Xxxxxxxx has extended (i) a $3,000,000 line
of credit to Zanett ("Guazzoni Line") and (ii) a $750,000 loan ("Guazzoni
Acquisition Loan") to ZCS (the Guazzoni Line and the Guazzoni Acquisition
Loan may be collectively referred to herein as, the "Guazzoni Obligations").
4.2 The Guazzoni Obligations are evidenced by (i)
that certain promissory note made by Zanett payable to Xxxxx Xxxxxxxx in
the original principal amount of $3,000,000 and (ii) that certain promissory
note made by ZCS payable to Xxxxx Xxxxxxxx in the original principal amount
of $750,000 (collectively, the "Guazzoni Notes").
4.3 The Guazzoni Obligations are unsecured.
4.4 The outstanding balance on the Guazzoni Line as
of the date of this Amendment is $1,700,000 and the outstanding balance on
the Guazzoni Acquisition Loan as of the date this Amendment is $750,000.
4.5 Neither the Guazzoni Notes nor any interest related
thereto have been assigned or otherwise transferred to any person or entity
and no such assignment or other transfer thereof will be made after the date
hereof.
4.6 Prior to December 31, 2007, Borrowers shall not
make any payments of principal on the Guazzoni Line which would cause the
outstanding principal balance on the Guazzoni Line to be less $750,000,
provided that, Borrowers may not make any payments on the Guazzoni Line,
if at the time of such payment (a) the Original Covenant Compliance Date has
not occurred or (b) after taking into account such payment, there is less
than $750,000 of Minimum Net Availability (as defined in the Loan Agreement)
or (c) if Event of Default has occurred.
4.7 After the later of (a) December 31, 2007 or (b)
the Original Covenant Compliance Date, Borrowers may make payments of
principal on the Guazzoni Line, provided that, Borrowers may not make any
payments on the Guazzoni Line, if at the time of such payment and after
taking into account such payment, there is less than $750,000 of Minimum
Net Availability (as defined in the Loan Agreement) or if Event of Default
has occurred.
4.8 Borrowers may make payments on the Guazzoni
Acquisition Loan to the extent permitted under the terms of the Subordination
Agreement.
4.9 If at any time, Xxxxx Xxxxxxxx receives a payment
by Borrowers which he is not entitled to by the terms hereof, he shall hold
such payment in trust for the benefit of Lender and shall promptly remit
such payment to Lender.
4.10 The Guazzoni Obligations are part of the Junior
Debt and shall be subject to the terms of the Subordination Agreement.
4.11 The Exhibit "A" attached to the Subordination
Agreement, which lists the Junior Debt Instruments is hereby replaced with
the Exhibit "A" attached hereto.
4.12 Attached hereto as Exhibit "B" are true and
correct copies of the Guazzoni Notes.
5. Amendment Fee. As consideration for Lender entering into
this Amendment, Borrowers have agreed to pay to Lender an amendment fee equal
to $10,000 (the "Amendment Fee"). The Amendment Fee is due and payable in
full upon execution of this Amendment. Borrowers agree that the Amendment
Fee has been fully earned by Lender and is non-refundable.
6. Confirmation of Collateral. Nothing contained herein shall
be deemed to be a compromise, satisfaction, accord and satisfaction,
novation or release of any of the Loan Documents, or any rights or
obligations thereunder, or a waiver by Lender of any of its rights under
the Loan Documents or at law or in equity. All liens, security interests,
rights and remedies granted to Lender in Loan Documents are hereby ratified,
confirmed and continued. Borrowers acknowledge and agree that the term "Loan
Documents" as used in the Loan Agreement and any other documents executed in
connection therewith shall include, without limitation, this Amendment and any
and all other documents executed in connection herewith.
7. Challenge to Enforcement. Borrowers acknowledge and agree
that they does not have any defense, set-off, counterclaim or challenge
against the payment of any sums owing under the Loan Documents, or the
enforcement of any of the terms or conditions thereof.
8. Representation and Warranties. Borrowers hereby, jointly
and severally, represent and warrant, which representations and warranties shall
survive until all Obligations are paid and satisfied in full, as follows:
8.1 All representations and warranties of Borrowers set
forth in the Loan Documents are true and complete in all material respects as
of the date hereof.
8.2 Upon the effectiveness of this Amendment, no condition
or event exists or has occurred which would constitute a Default or an Event of
Default under the Loan Agreement or any of the other Loan Documents.
8.3 Borrowers have not received any notice of default or
event of default from any other lender, trustee or lessor with respect to any
other loan, financing or lease agreement.
8.4 The execution and delivery of this Amendment by
Borrowers and all documents and agreements to be executed and delivered pursuant
to the terms hereof:
(a) has been duly authorized by all requisite
corporate action by each Borrower;
(b) will not conflict with or result in the breach
of or constitute a default (upon the passage of time, delivery of notice or
both) under any Borrower's Articles of Incorporation, By-Laws or any
applicable statute, law, rule, regulation or ordinance or any indenture,
mortgage, loan or other document or agreement to which any Borrower is a
party or by which any of them is bound or affected; and
(c) will not result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of Borrower, except liens in favor of Lender or as otherwise
permitted under the Loan Documents.
9. Conditions. The obligation of Lender to enter into this
Amendment is subject to the following conditions (any of which may be waived
by Lender):
9.1 Loan Documents. Borrowers and all other required
persons and entities will have executed and delivered to Lender this Amendment
and such other documents as Lender may require.
9.2 Other Documents. Such other documents as may be
required to be submitted to Lender by the terms hereof or any of the Loan
Documents shall have been delivered by or on behalf of Borrowers.
10. Additional Documents; Further Assurances. Borrowers
covenant and agree to execute and deliver to Lender, or to cause to be executed
and delivered to Lender contemporaneously herewith, at the sole cost and
expense of Borrowers, any and all other documents, agreements, statements,
resolutions, certificates, consents and information as Lender may require in
connection with the matters or actions described herein. Borrowers further
covenant and agree to execute and deliver to Lender or to cause to be executed
and delivered at the sole cost and expense of Borrowers, from time to time,
any and all other documents, agreements, statements, certificates and
information as Lender shall reasonably request to evidence or effect the
terms hereof, the Loan Agreement, as amended, or any of the other Loan
Documents, or to enforce or to protect Lender's interest in the Collateral.
All such documents, agreements, statements, certificates and information
shall be in form and content acceptable to Lender in its sole discretion.
11. Certain Fees, Costs, Expenses and Expenditures. Borrowers
will pay all of the Lender's expenses in connection with the review,
preparation, negotiation, documentation and closing of this Amendment and
the consummation of the transactions contemplated hereunder, including without
limitation, costs and fees and expenses of counsel retained by Lender and all
fees related to filings, recording of documents and searches, whether or not
the transactions contemplated hereunder are consummated. Nothing contained
herein shall limit in any manner whatsoever Lender's right to reimbursement
under any of the Loan Documents.
12. Communications and Notices. All notices, requests and other
communications made or given in connection with this Amendment shall be made
in accordance with the provisions of the Loan Agreement.
13. Time of Essence. Time is of the essence of this Amendment.
14. No Waiver. Except as otherwise provided herein, nothing
contained and no actions taken by Lender in connection herewith shall
constitute nor shall they be deemed to be a waiver, release or amendment
of or to any rights, remedies, or privileges afforded to Lender under the
Loan Documents or under the Uniform Commercial Code as adopted in the
Commonwealth of Pennsylvania. Nothing herein shall constitute a waiver
by Lender of Borrowers' compliance with the terms of the Loan Documents,
nor shall anything contained herein constitute an agreement by Lender
to enter into any further amendments with Borrowers.
15. Inconsistencies. To the extent of any inconsistencies
between the terms and conditions of this Amendment and the terms and
conditions of the Loan Documents, the terms and conditions of this Amendment
shall prevail. All terms and conditions of the Loan Documents not
inconsistent herewith shall remain in full force and effect and are hereby
ratified and confirmed by Borrowers.
16. Binding Effect. This Amendment and all rights and powers
granted hereby will bind and inure to the benefit of the parties hereto
and their respective permitted successors and assigns.
17. Severability. The provisions of this Amendment and all
other Loan Documents are deemed to be severable, and the invalidity or
unenforceability of any provision shall not affect or impair the remaining
provisions which shall continue in full force and effect.
18. No Third Party Beneficiaries. The rights and benefits
of this Amendment and the Loan Documents shall not inure to the benefit
of any third party.
19. Modifications. No modifications of this Amendment or
any of the Loan Documents shall be binding or enforceable unless in
writing and signed by or on behalf of the party against whom enforcement
is sought.
20. Holidays. If the day provided herein for the payment
of any amount or the taking of any action falls on a Saturday, Sunday or
public holiday at the place for payment or action, then the due date for
such payment or action will be the next succeeding Business Day.
21. Law Governing. This Amendment has been made, executed
and delivered in the Commonwealth of Pennsylvania and will be construed
in accordance with and governed by the laws of such Commonwealth, without
regard to any rules or principles regarding conflicts of law or any rule
or canon of construction which interprets agreements against the draftsman.
22. Headings. The headings of the Articles, Sections,
paragraphs and clauses of this Amendment are inserted for convenience
only and shall not be deemed to constitute a part of this Amendment.
23. Counterparts; Facsimile Signatures. This Amendment
may be executed in any number of counterparts, all of which taken together
constitute one and the same instrument, and any of the parties hereto may
execute this Amendment by signing any such counterpart. Any signature
delivered via facsimile shall be deemed an original signature hereto.
24. Waiver of Right to Trial by Jury. BORROWERS AND LENDER
WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (a) ARISING UNDER THIS AMENDMENT, (b) ARISING UNDER ANY OF THE
OTHER LOAN DOCUMENTS OR (c) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF BORROWERS OR LENDER WITH RESPECT TO THIS
AMENDMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE. BORROWERS AND LENDER AGREE AND CONSENT THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AMENDMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE
OF THE CONSENT OF BORROWERS AND LENDER TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY. EACH BORROWER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY
TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT IT FULLY UNDERSTANDS
ITS TERMS, CONTENT AND EFFECT, AND THAT IT VOLUNTARILY AND KNOWINGLY
AGREES TO THE TERMS OF THIS SECTION.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
BORROWERS:
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ZANETT, INC.
By: Xxxxxx Xxxxxxx
Name:
Title:
ZANETT COMMERCIAL SOLUTIONS, INC.
By: Xxxxxx Xxxxxxx
Name:
Title:
PARAGON DYNAMICS, INC.
By: Xxxxxx Xxxxxxx
Name:
Title:
LENDER:
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LASALLE BANK NATIONAL ASSOCIATION
By: Xxxxxxx Prekenis
Name:
Title:
CONFIRMATION AND AGREEMENT
The undersigned confirms and agrees that none of the terms of
this Amendment will in any way adversely affect his obligations or the
rights of Lender under that certain Subordination Agreement dated December
21, 2006 executed by the undersigned in favor of Lender, all of the terms
of which are hereby ratified and confirmed and that the Guazzoni
Obligations (as defined in the Amendment) are part of the Junior Debt
and shall be subject to the terms of the Subordination Agreement. The
undersigned further confirms and agrees that the "Senior Debt", as
defined in the Subordination Agreement, shall include, without limitation,
all advances made under the Loans and consents to and joins in the
representations, warranties and covenants set forth in Section 4 of this
Amendment and all other obligations of Borrowers under the Loan Agreement,
as amended by this Amendment.
IN WITNESS WHEREOF, the undersigned hereto has duly executed this
Confirmation and Agreement as of May 18, 2007.
Xxxxx Xxxxxxxx
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XXXXX XXXXXXXX, an individual
EXHIBIT "A"
Junior Debt Documents
1. That certain promissory note from ZANETT, INC. in favor of XXXXX
XXXXXXXX in the original principal amount of $500,000 dated December
30, 2005.
2. That certain promissory note from ZANETT, INC. in favor of XXXXX
XXXXXXXX in the original principal amount of $500,000 dated March 14,
2006.
3. That certain promissory note from ZANETT, INC. in favor of XXXXX
XXXXXXXX in the original principal amount of $500,000 dated March 15,
2006.
4. That certain promissory note from ZANETT, INC. in favor of XXXXX
XXXXXXXX in the original principal amount of $3,000,000 dated
February 21, 2007.
5. That certain promissory note from ZANETT COMMERCIAL SOLUTIONS,
INC. in favor of XXXXX XXXXXXXX in the original principal amount
of $1,500,000 dated December 30, 2005.
6. That certain promissory note from ZANETT COMMERCIAL SOLUTIONS,
INC. in favor of XXXXX XXXXXXXX in the original principal amount
of $3,075,000 dated December 30, 2005.
7. That certain promissory note from ZANETT COMMERCIAL SOLUTIONS,
INC. in favor of XXXXX XXXXXXXX in the original principal amount
of $750,000 dated March 6, 2006.
EXHIBIT "B"
Guazzoni Notes
See attached.
